Principled Product Development

Originally appeared in CUES Credit Union Management

CUs can benefit from applying entrepreneurial strategies and bringing offerings more quickly to market.

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I was originally going to title this article, “The Lean Credit Union,” but that might give you the idea that it’s about reducing head count, hours or expenses. Instead, this is really about making your credit union institutionally smarter and more entrepreneurial based on “the lean startup” methodology.

There is a lean startup movement afoot with nimble and disruptive software startups emerging in the financial services space. In 2011 Eric Ries authored the best seller, The Lean Startup, and there is plenty to learn from this book. On the surface, it may seem like it’s directed at the next software entrepreneur looking to take on Silicon Valley, but it’s so much more than that. There is plenty credit unions can learn and apply from these principles. The lean startup methodology provides a framework to be more innovative, stop wasting people’s time and be more successful. It’s not just about building software—it can be applied to developing any product or service.

To get us started, here’s an overview of the lean startup premise:

The lean startup is a scientific approach to creating and managing startups and to get a desired product into customers’ hands faster. The method teaches entrepreneurs and managers how to drive a startup—how to steer, when to turn and when to persevere—and grow a business with maximum acceleration. It is a principled approach to new product development.

Too many startups begin with an idea for a product they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer. When they fail to reach broad uptake from customers, it is often because they never spoke to prospective customers and determined whether the product was interesting to them. When customers ultimately communicate, through their indifference, that they don’t care about the idea, the startup fails.

Now let’s see how the first three principles of The Lean Startup can be applied at your credit union.

Entrepreneurs are Everywhere

This means you don’t need to work in a garage to be in a startup. The concept of entrepreneurship includes anyone who works at an institution designed to create new products and services under conditions of extreme uncertainty. This sounds like a credit union, doesn’t it? The current economic conditions are certainly extreme and the competitive landscape is ever changing and uncertain. Your credit union’s executives need to be thinking about how to better serve your members by improving or creating new products and services. This takes an entrepreneurial point of view. An attitude to think, “What if?” rather than “That will never work here” or “We can’t do that because...”

At most credit unions, though, entrepreneurship is not encouraged or even tolerated. “What will our examiners think?” or “We are in the business of minimizing risk” are the mantras of the day. Creative executives feel frustrated because they have fresh ideas and no means to try them out or bring them to life.

Entrepreneurship should be encouraged, especially within a highly mature (dare we say moribund?) company like a credit union. Entrepreneurs who work within an established organization—large or small—are referred to as “intrapreneurs.” These intrapreneurs are tasked with creating a new product or innovation. They must be visionary, adept at organization politics, and able to shield controversial ideas and teams from corporate meddling. Intrapreneurs must be able to navigate corporate policies, personnel and processes to get things done. And, because credit unions are so dependent on outside vendors, our intrapreneurs must be able to advocate for their credit union’s best interests while understanding what their members really need.

Entrepreneurship is Management

Even though your credit union is at least 50 years old (or seems like it is), it should always be in startup mode. A startup requires a new kind of management specifically geared to its context of extreme uncertainty. In modern companies that depend on innovation for their future growth, entrepreneurship is a prerequisite.

Today’s successful credit union is equal parts people helping people and technology helping people. We’ve got the people helping people part down—there’s a 100-year legacy of great member service—but the technology helping people part is a struggle for many credit unions. For the most part, credit unions are not creating their own technology. Instead, they are buying technology from large vendors and feel they are unable to innovate on their own. There are certain refrains heard over and over again at credit unions. “We can’t do that because we are trapped by our core,” or “That can’t be done within our environment,” or “We can’t afford the latest and greatest products and services.”

We need to move beyond a culture of “we can’t” to an entrepreneurial management environment that encourages rigorous experimentation. Even if your credit union isn’t in a position to create its own technology, there’s plenty your team can learn and do before committing to large IT expenditures. This is where validated learning comes into play.

An MVP Validates Learning

Startups exist not just to make stuff, make money or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments, testing elements of the entrepreneurial vision.

This part of the lean startup methodology holds the most promise for credit unions and yet goes so contrary to the way things typically get created at credit unions. The usual thinking goes, “We can’t ship anything until it’s perfected.”

Enter the minimum viable product (MVP for short). An MVP helps entrepreneurs start the process of learning as quickly as possible. It is not necessarily the smallest product imaginable, though; it is simply the fastest way to get through the build-measure-learn loop with the minimum amount of effort. Contrary to traditional product development, which usually involves a long, thoughtful, incubation period and strives for product perfection, the goal of the MVP is to test fundamental business hypotheses.

The easiest way to get started with validated learning and the MVP concept is to take any product, process or service you are considering putting in place and test whether it is desired or needed before making a large investment of time and money. A good example would be to test a product like personal financial management or remote deposit capture.

Since you are not likely to develop either of these products in-house, why not see if your members actually desire these products before moving forward with a third-party vendor? This could easily be done by posting a two- or three-question survey on the logout screen of online banking.

“We are considering adding an online budgeting tool directly into our online banking system to help our members keep track of their income and expenses. Would you be interested in this? Do you think you would use it? Would you like to be included in a beta test of this product?”

This would allow you to receive immediate feedback and gauge whether this is a product your membership is interested in before signing on the dotted line. You could even take this simple survey concept up a notch by adding a simple demo video.

Dropbox, the incredibly successful online file synchronization service, started with a humble MVP in the form of a demo video. Before any software had been written, founder Drew Houston posted a video of how he envisioned the software working. He was testing the leap-of-faith question, “If we can provide a superior customer experience, will people give our product a try?”

He believed—rightly, as it turned out—that file synchronization was a problem most people didn’t know they had. This is not the kind of entrepreneurial question you can ask or expect to answer in a focus group or through a survey. Customers often don’t know what they want until they see it. The challenge, in this Dropbox example, was that it was impossible to demonstrate the working software in prototype form. The product required that Houston and his small team overcome significant technical hurdles, including an online component that required high reliability and availability. To avoid the risk of waking up after years of development with a product nobody wanted, Houston did something unexpectedly easy: he made a video.

The video is banal, a simple three-minute demonstration of the technology as it is meant to work. It drove hundreds of thousands of people to the website and, within days, 75,000 people had signed up to be beta testers. This proved the case; Houston and his team built the software and, today, Dropbox is one of Silicon Valley’s hottest companies, rumored to be worth more than $1 billion.

Online banking startup Simple took a page from the Dropbox playbook and introduced its full-featured mobile concept more than a year before launching. In 2011, a rudimentary single-page website conveyed the value proposition through text, graphics and a simple video. Rumors are that Simple may have had more than 100,000 people signed up to be early adopters at launch in July 2012.

Now What?

I know you don’t run a software startup, but suspend your disbelief for a moment. I suggest reading The Lean Startup at a group level and having discussions around the ideas presented and how you can implement some of the concepts at your credit union. In addition to the three principles I explored here, you’ll also learn about principle four and five: build-measure-learn and innovation accounting.

The irony is that credit unions are longing for new ideas, longing to be thought of as innovative and relevant, but are unwilling to experiment and take calculated risks. By adopting the lean startup mindset and methodology, credit unions can become adept at thinking outside the box and rigorously testing processes, products and ideas quickly and, ultimately, become more beneficial and relevant to their members.


Tim McAlpine lives in Chilliwack, British Columbia, Canada. He is the President and Creative Director of Currency Marketing, an integrated marketing agency specializing in helping credit unions attract the next generation of members. Tim is best known as the creator of Young & Free and CUES Next Top Credit Union Exec, and co-creator of the CU Water Cooler.